Impact of copula choice on the modeling of crop yield basis risk
2011
Woodard, Joshua D. | Paulson, Nicholas D. | Vedenov, Dmitry | Power, Gabriel J.
A number of problems in agricultural economics involve modeling joint distributions for which the assumption of multivariate normality may not be warranted. Yet, very little work has been conducted evaluating competing methods for modeling joint dependence. We develop a simulation framework to evaluate the bias and efficiency impacts of copula choice in the context of evaluating countyâtoâfarm basis risk. The results suggest significant differences in performance across various copulas and approaches. The findings have important implications for risk analysis, insurance, and policy modeling problems in agriculture regarding the selection of method to model dependence among random variables.
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